Business Conditions: When it looks too good to be true…

The NAB released their October business survey earlier today with business conditions, according to the survey at least, surging to the highest level seen since February 2008. The 11.6 point bounce, the largest increase in the 17-year history of the survey, was all the more remarkable given business confidence, usually a precursor to future moves in conditions, dropped to the lowest level seen since August last year. Trading conditions and profitability surged 13 and 14 points apiece while the employment index, after under performing in recent months, bounced an impressive 7 points from September. From a sector-specific perspective services recorded the strongest reading with mining, wholesale and retail the laggards.

While not to dispute the findings, the NAB survey has a good reputation in the market, you do have to wonder whether the October data is sustainable, or indeed an aberration, given other supplementary data seen of late. Both the NAB and separate Roy Morgan business confidence readings continue to decline while the AIG Services PMI, something of a real-time gauge on activity within the Australian services sector, fell to 43.6 in October, the lowest level recorded since August 2013. This is a stark contradiction to the the NAB survey which has business conditions in services sitting at a multi-year high.